Developing a benefits system for Scotland

I did threaten, when I set up this blog, that I would use it to float half-baked ideas. This is a first stab – I’m likely to make changes and extend the argument as time goes by.

The Scottish Government has been keen to consider how to expand its role in taxation and economic management, but social security has hardly been mentioned. One of the main uses of tax is for “transfer payments” – moving money from one set of people to another. Pensions, tax credits and benefits have to be paid for. An independent Scotland, or a much more devolved administration – “devo-max” – would need to have its own benefit system. This has not largely featured in any of the discussions. That might be because it is a hot brick, and no-one wants to handle it; but it might also reflect a sense of despair, a feeling that not much can be done about it.

There is a general problem in all administrative reform called “path dependency”: changing things that work can be difficult to justify. Are we going to say, for example, that benefits should not be acting as a form of social insurance (the rationale for Widowed Parent’s Allowance)? That people should not be compensated for disability if they do not have financial needs (Industrial Injury Benefits)? That people should not have their rent paid (Housing Benefit)? It’s doubtful, if we were designing the system from the outset, that we would do things the same way; but once they have started, it’s hard to stop.

A benefits system cannot be designed from scratch. There are people now who are elderly, disabled, unemployed or otherwise in need of support, and they have benefits delivered on the same terms as the rest of Britain. The first thing that they will learn about a new system is whether they are better or worse off than they were before. If a Scottish system cost the same as benefits do now, it would either have to pay the same benefits, or it would have to justify paying less to some people so that others could get more. And people would always compare what was happening to what happens over the border. When the Republic of Ireland became independent from the UK, it mirrored the benefit system blow by blow for most of the next sixty years. Even today, it still has a clutch of benefits that look like benefits in the UK – Jobseekers Allowance (yes, the name is the same), State Pension and Child Benefit – and others that look a lot like the way that the UK system used to look (Invalidity Pension, Maternity Benefit, Supplementary Welfare Allowance). Scotland would most likely end up doing the same sort of thing.

The only practical way to make more fundamental reforms is to pay substantially more in benefits, so that people do not lose out. The strongest contender for a reformed system would be something like a Citizen’s Income – extending the universal principle of Child Benefit to a range of adults. The coalition government is talking about something similar in relation to pensions – a Citizen’s Pension, instead of the combination of insurance and means-testing we have now. The same principle could help people at the margins of the job market without work – the labour market in Scotland has a sector of people who are “sub employed”, shifting between benefits and causal, peripheral and temporary work, and a more secure income would make a big difference. To make it even possible, however, the Scottish Government needs to start thinking about the issues now.